Technology industry lobby groups and founders of startups have asked India’s banking regulator to include crypto-currency and crypto assets in its proposed regulatory sandbox framework for the fintech industry.
The Reserve Bank of India’s ‘Draft Enabling Framework for Regulatory Sandbox’, put out on April 18, had excluded crypto-currency, initial coin offerings, credit registry and other related sectors. The regulator had invited comments from stakeholders on the guidelines by May 8.
Distributed ledger, the technology on which crypto-currency and blockchain is based, is considered the future of finance, but applications under blockchain technologies have been included for testing under the proposed framework.
“Since crypto coins and tokens are an important component of the blockchain technology, the draft regulations appear to exclude testing of smart contracts and other approved blockchain technology under the sandbox,” said IT industry trade body Nasscom. “The decision to keep crypto-currencies, trading of crypto-currencies and initial coin offerings out of the purview of the regulatory sandbox, is still not clear.”
Nasscom said regulators in countries such as the UK permit such innovations in their regulatory sandbox, arguing that by including them the RBI could develop a better understanding of the risks.
Payments Council of India (PCI), the payments industry lobby group, has also sought a more open structure. Since there is no outright ban on crypto-currency technology, it should form part of the sandbox, said Naveen Surya, chairman emeritus of PCI.
“The boundaries can’t be defined right away. The discussion has been on how an open framework can be created instead of a subset of existing laws, because then we wouldn’t be achieving the innovation objective,” he said. “Ideally, they shouldn’t have such large exclusions.”
Founders who have been part of regulatory sandboxes in other countries too have weighed in on the debate.
“With Bahrain, the approach is that startups enter the sandbox and if their developments pan out, they are given licenses to start operating,” said Ramani Ramachandran, cofounder and CEO of ZPX, a Singapore-based startup that builds blockchain assets and which is part of the regulatory sandbox of Bahrain’s central bank.
Incrypt Blockchain said it had submitted a report to the regulator on a blockchain-specific sandbox, which included specifics on policies and procedures.
“Our research suggested that by restricting access to certain qualified digital asset startups, India could allow experimentation without worrying about any significant risks,” said Nitin Sharma, founder of Incrypt Blockchain.
Blockchain has the potential to solve issues involving governance, security and traceability, with applications such as smart contracts and multi-party financial transactions enabling digital identity, said Prashant Garg, Partner, Data and Analytics at EY India.“These have immense applications, especially for solving issues at a scale for a country like India. The exclusion is aimed at just one application of blockchain (crypto-currency); clearly the regulator sees fiat money being the way forward for India.”